Wednesday, February 12, 2003

Ohio: Budget crisis

Time to get a plan

For weeks, Ohio Gov. Bob Taft and the General Assembly have played a game of deficit "chicken." On Tuesday, it appears the governor blinked.

Taft recently proposed raising cigarette and alcohol taxes to help plug a $720 million hole in the state's current budget. And to fix a 2004-05 deficit estimated as high as $4 billion, he added a sweeping tax reform that would broaden the sales tax base but keep the rate level, close business tax loopholes, lower income tax rates and raise $2.3 billion in new revenue.

Last week the House rejected the "sin tax" hike outright, scuttling Taft's 2003 fix and putting the reform in jeopardy. The legislators' quick fix: accelerating collection of sales taxes, raiding state agencies' accounts, then raising the state's 5 percent sales tax to 6 percent temporarily if needed.

It's a bad alternative, yet faced with a rejection that would force him to make drastic cuts soon, Taft said Tuesday he could accept the temporary hike - if it guaranteed a balanced budget by June 30. But lawmakers don't want to commit to the increase now, and they're putting a pre-emptive block on any education cuts Taft might make. Their idea is to wait until income tax receipts start rolling in at the end of April to decide on the sales tax. That's nuts. It would give the state virtually no time to make the rate change and collect the added tax before June 30. On top of that:

Raising the tax rate is regressive. Unless its base is broadened, a higher rate penalizes lower-income Ohioans, whose spending is skewed more toward goods than services.

It makes Ohio less competitive. Right now, the 5 percent state rate is reasonable by national standards.

As taxpayers know all too well, "temporary" tax hikes have a funny way of becoming permanent.

Legislators should quit fixating on what they're against and start defining a realistic plan. Taft offered a tax reform that would reflect the 21st century economy, making Ohio's system fairer and simpler. Lawmakers should trim his 10 percent 2004-05 spending hike and the extra revenue that makes it possible, without rejecting tax-reform principles.

As we've said, if the legislature can cut spending and balance the budget without raising taxes, great. Its "plan," however, appears to be a) Let's wait and see in 2003, and b) Let's make it up as we go along in 2004-05. That's no way to go.

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